Swiss Franc Is Still 11% Overvalued, SNB Data Show

July 24 (Bloomberg) -- The Swiss franc is overvalued by 11
percent in June, a sign the Swiss National Bank will stick with
its current policy even as euro-area tensions abate.

The overvaluation increased from nearly 10 percent in May,
according to a gauge of the currency’s effective strength in
real terms versus 40 trading partners, according to data
published in the Zurich-based SNB’s monthly statistical
bulletin. A year ago it was about 21 percent too strong, the
data show.

The SNB set a cap of 1.20 per euro on the franc in
September 2011 to ward off deflation and a recession. A month
earlier, investors worried about the bloc’s debt crisis had
pushed it nearly to parity with the common currency. The franc
was 28 percent overvalued in August 2011, the data indicate.

Even with the strong currency, the Swiss economy has
managed to dodge the recession that has befallen the neighboring
euro area. Consumer prices fell for their 21st straight month in
June.

Given the franc is overvalued, “we are not looking for a
softening of the SNB’s position on the minimum exchange rate at
1.20 any time soon,” Reto Huenerwadel, an economist at UBS AG
in Zurich, said in a note to clients today.

SNB President Thomas Jordan said on July 20 that he had no
intention of changing or scrapping the cap, a line he also took
at the central bank’s most recent policy review in June.

An easing of the euro area’s debt crisis has allowed the
franc, which investors buy as a haven at times of heightened
uncertainty, to depreciate 2.5 percent against the euro this
year, while declining 2.2 percent against the dollar. It was
down 0.2 percent against the euro at 1.2389 at 11:10 am in
Zurich. Against the dollar it was little changed at 93.58
centimes.

That reduction in anxiety among investors is also evident
in foreign bank’s franc deposits with institutions in
Switzerland, which declined in May.